Repeal of ULCA

TNNDec 7, 2007, 12.02am IST

The repeal of the Urban Land Ceiling Act, one of the last traces of the licence-permit raj in Maharashtra is largely symbolic. After the Act was repealed by the central government, Maharashtra was one of the few states which had not done so.

But while welcome it has come at a time when the real estate sector is witnessing an unprecedented boom and even ludicrously high prices have failed to dampen demand, especially in Mumbai. The Act was seen as a major obstacle for the realty sector in cities like Mumbai where land is extremely scarce.

This resulted in an artificial shortage of dwellings that in turn sent prices skyrocketing and kept housing in Mumbai out of bounds for people from middle and low income groups. Proponents of ULC's removal had blamed the Act for all the ills in the real estate sector, including unnaturally high prices.

With the ULC gone, will that change? Perhaps not. The delay in getting rid of the Act, coupled with the growing economy, has already sparked off another wave of urbanisation all over the country. The influx of people to the cities is particularly high in Maharashtra where the rate of urbanisation is above the national average.

This has ensured that the demand for housing will not wane. Nor is it likely that real estate will soften significantly. This is because large chunks of land may not be freed up immediately. It's commonly believed that a large land mass, something like 15,000 acres in Mumbai alone, would soon be thrown open for development.

But that number, at best, can be described as fanciful. In many cases, the land has already been put to use through the backdoor, thanks to the politician-builder lobby. Besides, in Mumbai a substantial part of this land also comes under the coastal regulation zone (CRZ) and as such remains off limits for development.

The ULC repeal has fulfilled a small, but important, technical formality; more helpful for the state to spruce up its image than being useful in bringing property prices down. That will have to wait for more supply and a bursting of the housing bubble.